Every month, Matthieu David-Experton (E10), founder of Daxue Consulting, gives us an update on the China market. Today, he explains how fashion brands can organize their online-offline distribution balance in China.
The internet in China is one of the most powerful methods to increase brand penetration and sales volume as a clothing or fashion brand. It is easy to become seduced by e-commerce as a sales and engagement platform. However, fashion brands wishing to enter China and those looking to reposition themselves must be careful. Relying on e-commerce platforms alone may well lead to failure in penetrating into the market or loss in existing market share.
E-commerce accounted for just 13% of total retail sales, and 36% of total apparel sales. E-commerce is indeed a major sales channel for fashion brands, but it is not enough to ensure longer term success. Producing an optimal balance between online and offline platforms is key for longer term success in China.
The co-dependence of using both offline and online platforms for longer term success in China becomes very apparently when looking at the types of triggers that lead Chinese consumers to a purchase. Offline triggers dominate when Chinese consumers make purchases. Physical stores lead this list followed closely by online stores and fashion blogger sites. Digging deeper, the physical store is also one of the main avenues of pre-purchase research that consumers perform in addition to online reviews and online browsing. Regardless, of how tech-savvy Chinese consumers are becoming they still value trying, feeling, smelling, and tasting before buying. This is likely a major reason why Alibaba opened its own physical store in November 2015 in the port city of Tianjin.
From KPMG's annual survey “China's Connected Consumers” (2015)
With the brick-and-mortar store, brands must understand they come with a big caveat. The establishment of physical stores should be highly strategic. Physical stores in prime locations in China, especially in tier 1 cities, where most international brands want to (and arguably should) be based, can be expensive. Some brands such as Louis Vuitton have learned this. Following their highly aggressive expansion, anti-corruption reforms, a slowing economy, and changing preferences have forced the brand and some others to close stores, including those in prime locations. While the sheer brand penetration and sales gained through such aggressive expansion in China by big names may have been worth it, for smaller brands eyeing China, this type of aggressive, unsustainable expansion is a risky approach.
A selective and strategic approach to opening physical stores is further when looking at what offline avenues are used. 71% of Chinese buyers of luxury goods (handbags, fashion, watches, etc.) frequently buy from out-of-country; duty-free shops, daigou (people buying on behalf of others), and official overseas brand outlets. While only 29% say they frequently buy from official online shops and physical branches in China. Furthermore, a significant number of these purchases occur nearby in Hong Kong, Macau, and Taiwan.The proportion of consumers with preferences to purchase luxury products abroad clearly has implications high-end fashion brands. Stores should be opened after careful consideration.
Sources: Fortune China, Bain Consulting, FT Intelligence
While the overall growth of the e-commerce market in China has been somewhat modest at 12.9% of total retail sales in 2015 (up from 10.7% in 2014), the growth of online fashion retailing has seen steady growth since 2012. Currently, around 36% of fashion sales are made online, much higher than the 12.9% over all sectors. Furthermore, fashion makes up 63% of purchases on social media.
Sources: Analysys International, Ebrun.com
E-commerce channels are a component that fashion brands must take advantage of. Specifically, this means B2C (business-to-consumer) services. The B2C market has been steadily increasing in size and it has already surpassed the C2C market. B2C is an enormous and continually growing platform that brands in China would be wise to start employing.
Within the B2C market itself, Tmall and JD.com control over 80% of B2C sales. Tmall was launched in 2008 by Alibaba to expand into the B2C market, targeting medium to large businesses. On sites such as Tmall and JD, brands can open ‘flagship’ stores where sellers hold the exclusive authorisation to trademarked products. However, Tmall has been plagued by some counterfeiting problems – something that JD.com has capitalised on with its ‘zero tolerance’ to counterfeiting,
If (or when) ‘counter-counterfeiting’ can be assured and Chinese customers continue to have greater faith in these platforms, B2C can become a powerful sales channel for any brand.
In addition to e-commerce platforms, social media is another key tool employed by fashion brands to engage with Chinese customers. Having a presence on social media can be the difference between booming sales and having no business in China at all.
For brands with less budget to play with social media on platforms such as Weibo and WeChat produce high interaction, make it easy to build customer loyalty (loyalty is a trait Chinese consumers have been demonstrating for some time now), and helps to build brand rapport.
Earlier it was stated that without an offline presence a brand in China would fail. As with anything, there are exceptions.
Otte, a New York Boutique brand, secured a customer-base whose over half were based in China without one physical store. As a small boutique brand, opening a store in China would have been high risk, but the company was able to establish a presence in China through adeptness with Chinese social media.
For big brands, social media acts as an equally important tool. Burberry, Coach and Chanel all have a significant presence on WeChat. Used in conjunction with a physical presence, it can be a critical tool in producing and hanging on to success in China.
Getting the balance right between offline and online platforms as a fashion brand can be tough. However, data suggests that both the online and offline experience is important to Chinese customers. Hitting the four platforms discussed in this article: brick-and-mortar store, official online store, B2C platforms, and social media, allows brands to hit all the purchasing triggers of Chinese consumers.
Physical stores remain very key ways that Chinese customers research and purchase products. However, physical stores should be highly strategic or brands risk needless physical presence where it is not needed – particularly when many Chinese purchase high-end fashion out of China.
With regards to official online stores, while only a small percentage of Chinese say they purchase through official online stores, having this presence can be important to brand rapport and for research before committing to a purchase.
When looking specifically to build online sales, brands can look to B2C platforms (specifically Tmall and JD.com) as avenues to consider. More Chinese are flocking to these sites than ever with increases in trust for the products sold on the sites.
Brands must also realise that social media is one of their most important tools in China. All known international brands in China have some sort of social media presence for a reason, and this is an area without a doubt that all brands should emphasise efforts in.
Read our previous Chinese Chronicle here.
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